Rising internet adoption and growing data consumption among rural users are becoming key structural drivers of growth in average revenue per user (ARPU) for Indian telecom companies (telcos). To tap into this trend, telcos are expanding rural connectivity, which is expected to boost their data subscriber base and returns.
According to a Tuesday report titled “Telecom ARPU to rise 10-12% this fiscal as rural data usage surges” by rating agency Crisil Ratings, between January 2021 and December 2024, internet penetration in rural India increased significantly—from 59% to 78%—outpacing growth in urban areas, which rose from 77% to 90% (see Chart 1 in the annexure). Rural internet penetration is expected to rise another 4-5% by the end of fiscal 2026, driven by increased use of digital communication, mobile payments, social media, streaming services, and e-commerce.
Despite being more price-sensitive, rural users continued using mobile internet even after tariff hikes in mid-2024. This resilience underscores their growing dependence on mobile data.
The surge in rural data usage is also supported by expanding network infrastructure, affordable data plans, and better smartphone access. This growth is especially visible in telecom circles B and C (Chart 2), which account for nearly 70% of India’s rural subscriber base. Data usage in these regions has grown at a compound annual rate of 19–22% over the past four years—faster than the 17–19% growth seen in metro areas—indicating strong and sustained demand for mobile internet. Continued 4G network expansion in underpenetrated areas is expected to maintain this momentum and further increase ARPU.
According to Anand Kulkarni, Director at CRISIL Ratings; “Industry ARPU is projected to rise by ₹20–25 to reach ₹225–230 by the end of this fiscal, assuming stable tariffs. Rural subscribers are expected to contribute around 55–60% of this growth. Lower internet penetration in rural areas presents an opportunity for migration to data plans. Additionally, as data usage rises, many users are likely to upgrade to higher-tier plans. Rural areas will be key drivers, since mobile phones are often the primary internet access point, unlike metro areas where users also rely on Wi-Fi.”
In line with this trend, telcos are tailoring their offerings with more data-focused plans and investing in rural infrastructure, including spectrum purchases and tower installations. In the June 2024 auction, most of the spectrum acquired was in circles B and C. Furthermore, independent tower companies plan to invest ₹8,000–9,000 crore in fiscal 2026, much of which will be directed towards rural expansion.
“Targeted investments in rural networks and spectrum, combined with rising ARPU, are expected to lift telcos’ return on capital employed from around 10% in fiscal 2025 to about 12% in fiscal 2026. Since nearly 75% of telecom costs are fixed, even a modest ARPU increase can significantly boost profitability,” says Mohini Chatterjee, Team Leader at CRISIL Ratings.
However, Crisil cautioned that maintaining affordable data plans will remain crucial to sustaining growth in rural internet subscriptions.